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Wealth jumps, but property correction could hurt

Nicki Bourlioufas  |  04 Oct 2018Text size  Decrease  Increase  |  
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Australian household wealth hit a record high in the June 2018 quarter, boosted by higher share prices and despite falls in property prices although a property correction in Australia’s biggest cities could dent wealth.

Household net worth rose to a record $10.36 trillion in the June 2018 quarter, up from $10.25 trillion in the March quarter.

Riding on the back of a stronger share market, net worth per person rose to $414,463 in the June quarter from $411,821 in the March quarter, according to data from the Australian Bureau of Statistics.

“It is clear that household balance sheets remain solid,” said CommSec senior economist Ryan Felsman, who noted that over the past five years, per capita wealth has risen by almost $113,000 or 37 per cent.

A big chunk of household wealth, or 66 per cent, is made up of property, which totalled $6.90 trillion in the June quarter, while financial assets such as cash, terms deposits and shares amounted to $5.19 trillion.

However, the ABS said households recorded real holding losses property in the June quarter of $50.7 billion, the second consecutive loss after March quarter 2018 reported losses of $69.2 billion.

“Looking ahead, home prices are likely to ease further from record levels – especially in Sydney and Melbourne,” Felsman said.

“Per capita wealth may consolidate around $400,000 after significant gains over the past five years, should home valuations continue to deteriorate.”

elevated aussie wealth

The ABS reported last week that property prices are falling in several Australian cities. During the June quarter, house prices fell in Melbourne by 1.2 per cent, by 0.8 per cent in Brisbane. In Sydney, prices fell by 0.7 per cent. Over the year, Sydney house prices fell 3.9 per cent, second only to Darwin at 6.1 per cent.

Louis Christopher, managing director of property forecaster SQM Research, says house prices falls in Sydney and Melbourne will be the greatest of the capital cities this year, excluding Darwin.

Christopher forecasts Melbourne price could fall up to 3 per cent in 2018, having forecast price falls of up to 4 per cent for Sydney. “There is a chance we could undershoot in terms of the Sydney price drop for this year … but we have seen clearance rates hold out in recent weeks,” he said.

Total property listings in Sydney rose by 10.9 per cent in August, leaving the increase on a year earlier at 30.4 per cent. Sydney residential property listings are now at the highest level recorded since February 2009, which has contributed to lower prices, according to SQM Research data.

Reflecting very high levels of debt, the ABS said that the mortgage debt to residential property ratio rose to 26.9 per cent in the June quarter from 26.5 per cent, indicating that mortgage debt grew faster than the value of residential real estate owned by households.

The interest payable to income ratio at June quarter 2018 increased to 11 per cent from the March quarter 2018 ratio of 10.7 per cent.

Shares and super soar

In terms of other assets, households held a record $1.11 trillion in cash and deposits at the end of June, while they owned a record $971.9 billion in shares, up from $950.3 billion in the March quarter. Superannuation assets totalled $2.81 trillion, also a record, and up from $2.71 trillion in the March quarter, reflecting stronger share markets.

Over the June quarter, the ASX200 index rose by 7.6 per cent and the All Ordinaries increased by 7.2 per cent – the best quarterly outcome since 2015.

Aussie household balance sheet

Wealth gaps grows

While wealth has grown strongly in Australia, the big gains have been among the wealthiest 10 per cent, with the poorest 50 per cent of Australians slipping from a 3.9 per cent share of private wealth 10 years ago to 3.7 per cent in 2017, according to a report released from Roy Morgan research this month.

In particular, the wealthiest 10 per cent of Australians with an average per capita wealth of over $2 million, hold 48.3 per cent of net wealth compared to 46.8 per cent in 2007, while the poorest 50 per cent of Australians have seen their total share of net wealth fall from 3.9 per cent to 3.7 per cent, according to the Roy Morgan Wealth Report.

Growing personal wealth is highly correlated to income level, with those earning over $130,000 having an average net wealth ($1.2 million) nearly five times those earning under $15,000 ($248,000), Roy Morgan said.

 

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Nicki Bourlioufas is Morningstar Australia contributor

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is a Morningstar contributor.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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